he Australian dollar is likely to face increased selling pressures over the week as economists forecast employment to fall 30.0K in May, and the downturn in the labor market is likely to reinforce a weakening outlook for growth and inflation as businesses continue to lower their cost structure in an effort to weather the slump in global trade.
[U][B]Trading the News: Australian Employment Change[/B][/U]
Time of release: [B]06/11/2009 01:30GMT, 21:30 EST
[/B]Primary Pair Impact : [B] AUDUSD[/B]
[B][U]Impact the Australia Employment Change had on AUDUSD over the last 2 months[/U][/B]
[B]Period[/B] [B]Data Released[/B] [B]Estimate[/B] [B]Actual[/B] [B]Pips Change[/B] [B](1 Hour post event )[/B] [B]Pips Change[/B] [B](End of Day post event)[/B] Apr 2009 05/07/2009 01:30 GMT -25.0K [B]27.3K[/B] -3 -1 Mar 2008 04/09/2008 01:30 GMT -25.0K [B]-34.7K[/B] +16 +136
[U]April 2009 Australian Employment Change
The Australian labor market unexpectedly added 27.3K jobs in April amid expectations for a 25.0K drop in employment, with the jobless rate falling to 5.4% from 5.7% in March. A deeper look at the report showed full-time employment increased 49.1K during the month, with part-time positions falling 21.8K, while the participation rate slipped to 65.4% from 65.5% in the previous month. The data encourages an improved outlook for the $1T economy as policymakers take unprecedented steps to shore up the economy, and the Reserve Bank of Australia may bring an end to its easing cycle as growth prospects improve. Nevertheless, market participants project the unemployment rate to push higher over the near-term as the downturn in the global economy intensifies, and businesses may continue to scale back on production and employment as they face fading demands from home and abroad.
[U]March 2009 Australian Employment Change
Australian employment plunged 34.7K in March, which was greater than the 25.0K drop forecasted by economists, while the annual rate of unemployment surged to 5.7% from 5.2% in February to mark the biggest jump since 1991. The breakdown of the report showed full-time positions plunged 38.9K during the month, while the drop was offset by a 4.2K rise in part-time jobs, and the data continues to reinforce a dour outlook for growth and inflation as households face a weakening labor market. At the same time, firms may continue to lower their cost structure in an effort to weather the downturn in global trade, and the fall in business confidence is likely to weigh on economic activity as the region faces its first recession in over a decade. As a result, market participants speculate that the RBA will continue to ease policy further in order to jump-start the $1T economy, and expect the central bank to lower the cash rate in the month ahead as growth prospects deteriorate.
[B]What To Look For Before The Release[/B]
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
[U][B]Bullish Scenario:[/B][/U] If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release. [U][B]Bearish Scenario:[/B][/U] If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the Euro against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release.
[B]How To Trade This Event Risk [/B]
The Australian dollar is likely to face increased selling pressures over the week as economists forecast employment to fall 30.0K in May, and the downturn in the labor market is likely to reinforce a weakening outlook for growth and inflation as businesses continue to lower their cost structure in an effort to weather the slump in global trade. On the other hand, the unexpected rise in the 1Q GDP reading paired with the rebound in business confidence could foster an improved outlook for the $1T economy, and an unexpected rise in employment could bolster the aussie against its currency counterparts as market sentiment improves. A report by the Australian Bureau of Statistics showed the trade balance unexpectedly fell to A$-91M in April as exports plunged 11.3% from the previous month, which is the biggest drop since 1997, while a separate report showed business investments tumbled 8.9% in the first quarter to mark the biggest drop since recordkeeping began in 1987. In addition, job advertisements dropped another 0.2% in May after falling to a record low in the previous month, while vacancies for skilled jobs slumped 62.6% in May from the previous year, and the data foreshadows a weakening outlook for the region as business continue to scale back on employment and investments in order to reduce costs. At the same time, the Reserve Bank of Australia held the benchmark interest rate steady at the 49-year low of 3.00% for the second consecutive month in June on indications that the ‘global economy is stabilizing,’ and market participants speculate that the central bank will hold the cash rate steady throughout the rest of the year as Governor Glenn Stevens sees an economic ‘expansion towards the end of this year.’ However, the central bank head noted that the ‘rapid decline in business investments’ is likely to continue, while he expects fading demands for employment to ‘weigh on incomes and willingness to spending,’ and the comments suggests that the board is willing to take further steps to stimulate the ailing economy as growth and inflation falter. Nevertheless, Governor Stevens stated lower borrowing costs could be ‘counterproductive’ as consumers and businesses take advantage of the ‘unusually low’ interest rate, and went onto say that the central bank has ‘some scope’ to take additional steps if growth prospects continue to deteriorate.
Trading the given event risk clearly favors a bearish outlook for the Australian dollar but nevertheless, the unexpected rebound in full-time employment in April has left the door open for an enhanced labor report. As a result, if employment falls 15K or less in May, we will look for a green, five-minute candle following the release to confirm a buy entry on two-lots of AUD/USD. Once these conditions are met, we will place our initial stop at the nearby swing low, or a reasonable distance, and this risk will establish our first target. Our second target will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in order to preserve our profits.
On the contrary, the record drop in business spending paired with the slump in job advertisements is likely to weigh on the labor market, and price action following a dismal employment report could set the stage for a short AUD/USD trade. Therefore, if payrolls drop 30.0K or more in May, we will look to sell the Australian dollar, and will follow the same strategy for a short aussie-dollar trade as the long position mentioned above, just in reverse.